Bank of America (
) shares plunged 20 percent in Monday trading, dragging other
financials like Citigroup (
) and Wells Fargo (
The rout took place against a backdrop of generalized panic in
financial markets, with the Dow Jones Industrial Average dropping
around 600 points by the close and the NASDAQ off more than 155
Bank of America was hit by a confluence of events. First, the
Standard & Poor's rating agency downgraded the United States
from its top-level AAA sovereign credit rating by one notch to AA+.
S&P has been heavily criticized both for its role in handing
AAA ratings to toxic mortgage-backed securities during the real
estate bubble and for this most recent decision. The agency cited
several factors, including the miserable state of U.S. policy
making, a reluctance to raise revenues and prolonged economic
weakness, in its decision to downgrade the U.S.
The Treasury Department
by pointing out a fairly large - $2 trillion - discrepancy in
the agency's calculation of its 10-year projection for total local,
state and federal debts as a share of GDP. The loss of the AAA
rating is bad news for Bank of America both because it hurts the
economy and because the downgrade was soon extended to Fannie Mae
and Freddie Mac, throwing doubt on the whole structure of U.S.
In addition, the bank revealed that American International Group,
giant which helped kickstart the crisis in 2008 after it
effectively imploded under the weight of its obligations,
is suing Bank of America
for $10 billion in losses sustained as a result of toxic mortgage
The combination proved too much for investors, who have taken off
40 percent of the company's value since the beginning of July. It's
a massive hit, though the bank has arguably been defying criticism
with aplomb for quite some time.
Tuesday should be an interesting day in the markets - particularly
for the major financials, as
that banks around the world are set to cut over 100,000 jobs.